Does Your CPA Really Know You? Ask Yourself 5 Questions

Date February 9, 2024
Article Authors

Each day I talk to business leaders about what they like best – and least – about their Certified Public Accountants (CPAs). The responses range from, “I won’t buy a mobile phone without checking with Mary,” to “Mark is okay, but he likes my rival football team and that’s unacceptable.”

Clearly, there are many factors that can solidify or dissolve a relationship with a trusted advisor such as your CPA. Some, while not preferred, are tolerable; others are absolute deal breakers. Still, the services of a CPA are crucial to the success of any company. That’s why you should ask yourself these five questions to determine if your CPA is meeting your needs, or it’s time to move on to someone else.

Does my CPA understand my business and industry?

As the business development manager of a “Top 50” accounting and wealth management firm, I hear the term “generalist” quite often. In the accounting world, the label applies to a professional with clients in multiple industries. Traditionally, a CPA’s role was to have a working knowledge of each of their clients’ industries. Today, top firms specialize in precise areas of focus to ensure they are experts in the tax laws that govern their clients’ industries. For example, if you own a construction company and the only construction company your CPA works with is your own, are you certain you are taking advantage of every potential tax benefit and functional process available to streamline and grow your operations?

Am I getting the value I deserve?

Value has different meanings for different people. Accounting value is leverageable by:

  • Knowing your CPA is always there when you have questions
  • Trusting your CPA is current with the ever-changing tax laws that govern business owners
  • Counting on your CPA to complete important tasks on time

Value is essentially whatever you perceive it to be. Knowing what is important to you and your business will help you identify problems when your expectations of value are not being met. Make sure you can define “value” when working with your CPA, who must be a trusted advisor to be effective.

Have I outgrown my CPA?

You likely have a good relationship with your CPA. He or she has been with you since the beginning, seen your kids grow up, been there through tough times and good. But does that alone ensure he or she is the best partner for your company today? Can he or she guide you through the complex scenarios your business faces? In many cases after a consultation with their CPA of so many years, a business owner realizes the CPA is not only overwhelmed by the company’s growth, but also ill-prepared to help the company capitalize on its success. This is a dangerous place for a business owner.

Am I receiving the level of service I have come to expect from my CPA?

Do you feel like every time you call, your CPA isn’t in, and it takes forever to get a return call? Are you only meeting with your CPA once a year to drop off your tax documents? Have you ever had to write an unexpectedly large check to the IRS without knowing in advance why you owed so much? Think about what services you believe are most valuable to you, then ask yourself, are you receiving the level of service that you expect from your current CPA?

Are accounting services the only services the firm offers?

In today’s world, accounting firms must take a holistic approach to providing added value and top-level financial services. Does Mike from XYZ Tax do your accounting, Mary from the bank your 401k, and Diane from ABC Investments a business succession plan? What if your business could work with one company in a single location for all that? When the left hand knows what the right hand is doing, you gain significant efficiencies. Can you afford to not have all of your trusted business advisors working together, sharing information, and strategizing about your best options?

Having a trusted advisor as your CPA is more than simply hiring someone who belongs to your club or likes the same sports teams you do. It’s about partnering with a reliable professional who is a specialist in your field of business and who will help guide you and your company to the next level of financial success and security.

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Marrie to Address Florida Cannabis Industry Information Events

Date February 6, 2020
Article Authors
HBK CPAs & Consultants

HBK Principal and Cannabis Solutions Group leader Christopher Marrie will be featured at two upcoming local events related to business opportunities in the cannabis/hemp space. On February 11, Chris will moderate a panel of speakers at the Cannabis Private Investment Summit of Florida at Greenspoon Marder, LLP, in Ft. Lauderdale. The day-long Summit is for business owners, investors, financiers, industrialists and others considering investing in or starting a Cannabis business. Topics include: -An overview of legal cannabis -The benefits of an investment fund in the cannabis industry -Cannabis valuations -Medical cannabis and capitalizing on cannabis before the end of its prohibition -Identifying states prime for investment opportunities On February 21, Chris will participate in a roundtable discussion on the potential benefits and pitfalls of investing in cannabis and hemp-related projects at the Lake County Bar Association’s monthly lunch-and-learn at the Sidney & Berne Davis Art Center. Chris is a recognized authority on the industry, and has been instrumental in the development and growth of the HBK Cannabis Solutions Group. He has worked extensively with clients in all facets of the industry. If you are looking for business advisory, taxation, investment and/or wealth management advice relative to the Cannabis industry, we encourage you to register for one of these events. For more information about the services of the HBK Cannabis Solutions Group contact Christopher Marrie at CMarrie@hbkcpa.com or call 239-263-2111 . For registration or more information about the Cannabis Private Investment Summit of Florida, please visit REQUEST AN INVITATION HERE, or contact Info@kahnerglobal.com For more information on the Lake County Bar Association’s discussion of hemp, visit REGISTER HERE or contact the Lake County Bar Association at Admin@leebar.org or call 239-334-0047.

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Employee Stipends: Taxable or Not?

Date January 7, 2020
Categories
Article Authors

Many companies choose to pay stipends to employees as a method of compensating them for incurred business expenses. This is especially true in construction companies, where it is widely viewed as a common industry practice. While the approach of using stipends in this manner is widespread, many construction companies fail to properly plan for and/or execute them, which can result in additional taxes owed by both the company and the employee.

In the simplest terms, a stipend is a monetary advance to an employee that allows an him or her to pay for various business expenses. Depending on how the stipend is structured, it can either be taxable income to the employee, or a non-taxable reimbursement. In order to keep the stipend non-taxable, a company must implement an accountable reimbursement plan, whereby employees complete expense reports proving that all business-related expenses are being reimbursed through the payment of the stipend. If a company does not have an accountable plan, or it is not followed (e.g. expense reports are not submitted or do not provide the appropriate documentation to support the expenses claimed), then the stipend paid to the employee may be re-characterized as taxable income.

One area where companies may run into difficulties with employee reimbursement stipends is in the area use of a personal vehicle for business purposes. The easiest method to use is to base the reimbursement on the number of business miles driven multiplied by the IRS standard mileage rate, which is currently 57.5 cents per mile. If a company provides a stipend to an employee prior to the business usage of the car, the company will need to take great care in reconciling the expense report provided by the employee. If business usage is less than the stipend provided, the employee should reimburse the company for the excess funds received.

It’s clear that establishing an accountable reimbursement plan is essential for any company providing stipends to employees for business expenses. For more information, please contact Richard P. Mishock at RMishock@hbkcpa.com or reach out to your HBK advisor.

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PA Updates Limitation Statutes on Tax Exemptions, Liabilities

Date December 19, 2019
Categories
Article Authors
HBK CPAs & Consultants

In an unusual move, the Pennsylvania legislature passed a mid-year tax bill. The Act includes the 10-year statute of limitations for the Pennsylvania Department of Revenue (PDR) to collect outstanding liabilities, a sales tax exemption for a financial institution’s purchase of software, a requirement for banks to participate in the Financial Information Data Match (FIDM) for outstanding tax liabilities, and an extension of the criminal tax statute of limitations.

Effective January 1, 2021, the PDR will have 10 years to collect outstanding liabilities. This ten-year statute of limitations is effective for tax liens filed after January 1, 2021. The Department has until 2031 to collect on liens filed prior to 2021. The statute will not include a liability under appeal. The statute also does not apply in the following situations:

  • The failure to remit trust fund taxes (i.e. sales and employer withholding)
  • The filing of a false or fraudulent tax return
  • Willfully failing to file a return or report as required by law
  • Attempting to evade or defeat a tax
  • Not paying liabilities related to criminal convictions
  • An instance of inheritance tax
  • Unknown liabilities that have not been extinguished prior to the commencement of a subsequently enacted or approved tax amnesty program

    Beginning November 27, 2019, purchases of canned computer software used directly for conducting the business of banking will be exempt from sales and use tax. The exemption applies to financial institutions that are subject to the Bank and Trust Company Shares Tax or the Mutual Thrift Institutions Tax. The term “directly utilized in conducting the business of banking” is defined to include a financial institution’s purchase of canned computer software to be used in transactions with customers and service providers. It does not include the purchase of canned computer software by entities other than financial institutions such as holding companies or financial institution subsidiaries.

    The Act also requires financial institutions to participate in the FIDM program for unpaid tax liabilities. On a quarterly basis, financial institutions must make a reasonable effort to provide the PDR with any asset information an obligator may have. This program is similar to the program financial institutions participate in related to uncollected child support payments. Pennsylvania joins a growing number of states that require participation in the collection of outstanding tax liabilities.

    Effective November 27, 2019, a three-year statute of limitations was applied to criminal tax prosecutions. However, an offense provided for under Title 18 Pa.C.S. (crimes and offenses), relating to misconduct under the tax statutes must be prosecuted within five years after the commission of the offense. In addition to any fine and/or imprisonment, the PDR will be entitled to restitution from any taxpayer convicted under the criminal provisions.

    For questions, please contact HBK’s State and Local Tax leader and Tax Advisory Group member, Suzanne Leighton, CPA, MST at SLeighton@hbkcpa.com.

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    Benefiting from Non-Deductible IRC 280E Expenses in an S-Corp

    Date December 12, 2019
    Categories

    Internal Revenue Code section 280E prevents businesses engaged in the trafficking of a Schedule I or II controlled substance* from taking federal income tax deductions for ordinary and necessary business expenses—allowing deductions only for costs of goods sold. However, in certain situations, S corporation shareholders may receive a tax benefit from these otherwise non-deductible expenses due to stock basis ordering rules.

    Generally, losses may be deducted by a taxpayer only to the extent of their basis, that is, the amount invested. Basis is adjusted in the following order: (1) income, (2) non-dividend distributions, (3) non-deductible expenses, and (4) losses.

    When a shareholder’s loss or deduction items are disallowed due to basis limitations, they are suspended and carried over to the succeeding taxable year. The suspended losses and deductions are treated as incurred in that succeeding year, are added to the shareholder’s loss and deduction items actually incurred during that year. Under Treas. Reg. 1.1367-1(g), however, a shareholder can elect to have basis adjusted in a different order: (1) income, (2) non-dividend distributions, (3) losses, and (4) non-deductible expenses. The effect of the election is that any unused non-deductible expenses are carried forward until they are used to reduce stock or debt basis. Once the election is made, the shareholder must continue to use that ordering rule unless the IRS approves a change back to the standard rule. The election may be made on an original return or an amended return.

    Consider the following illustration:

    George is the sole shareholder in an S corporation. At the beginning of the year, he has $100,000 in basis. The company has a taxable loss of $250,000 for the year, plus $600,000 of non-deductible expenses.

    If the shareholder makes—or has previously established—a 1.1367-1(g) election, they can apply $100,000 of taxable loss to their basis first. The loss will be taken on their individual return and the remainder—$150,000 of losses and $600,000 of non-deductible expenses—carries forward to the next year.

    If the shareholder has not made the election, the $100,000 of beginning basis will be reduced by $100,000 of the non-deductible expenses. The entire $250,000 loss is then carried forward to the next year. However, the $500,000 of non-deductible expenses exceeding the basis are not deductible and do not carry forward. By making the election, the shareholder receives a tax benefit even though the expenses are in theory non-deductible.

    Election under 1.1367-1(g) Stock Basis Ordering Rules
    Basis:
    Beginning basis 100,000 100,000
    Non-deductible expenses (600,000)
    Non-deductible expenses in excess of basis – not carried forward 500,000
    Stock basis before losses 100,000 0
    Losses incurred (250,000) (250,000)
    Suspended losses carried forward 150,000 250,000
    Stock basis before non-deductible expenses 0
    Non-deductible expenses (600,000)
    Suspended non-deductible expenses carried forward 600,000
    Ending stock basis 0 0
    Suspended losses carried forward 150,000 250,000
    Suspended non-deductible expenses carried forward 600,000

    On the surface, the 1.1367-1(g) election seems like a good idea. It allows the use of a tax-deductible loss now instead of a future year. However, making the election could have negative consequences for S corporation shareholders, as any deductions for non-deductible expenses that aren’t used up due to basis limitations are lost.

    These rules affect all S corporation shareholders, but it’s particularly important for cannabis companies because under the limitations of the Controlled Substances Act they tend to have large amounts of non-deductible expenses. Taking advantage of the stock basis ordering rules is an involved process requiring many considerations; it is critical to use a tax preparer familiar with these rules. Making a 1.1367-1(g) election without considering the consequences, or being unaware of the carryover rules and tracking non-deductibles incorrectly, could be extremely costly. Make sure you have a CPA who knows the rules and can apply them to your benefit.

    * The Controlled Substances Act (CSA) is the statute establishing federal U.S. drug policy under which the manufacture, importation, possession, use, and distribution of certain substances is regulated. It was passed by the 91st United States Congress as Title II of the Comprehensive Drug Abuse Prevention and Control Act of 1970 and signed into law by President Richard Nixon.[1] The Act also served as the national implementing legislation for the Single Convention on Narcotic Drugs.

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    Your Employees May be Stealing from Your Dealership

    Date November 13, 2019
    Categories
    Article Authors
    Clint Whitehair

    Internal theft is a persistent problem for dealers. It is estimated that dealership employees are stealing the equivalent of $9 per employee per day, so a dealership with 100 employees is suffering a theft loss of $234,000 each year.

    With the impact to dealers so high, what can you do to prevent and protect yourself from fraud? Listed below are a few internal controls that if implemented could help prevent theft.

    New Department
    • Perform frequent unannounced physical inventory counts
    • Establish strict inspection procedures
    • Allow no options or equipment to be removed without an internal repair order

    Used Department
    • Maintain an approved list of wholesalers and do business only with those approved
    • Verify dealer licenses and sales tax permits
    • Review all wholesale transactions that result in a loss and retail transactions with low grosses

    Parts Department
    • All parts and repair orders need to be computer generated with changes crossed off and initialed by the manager. Then the ticket should be properly voided with the corrected ticket referencing the original document.
    • Establish a clear policy for discounted purchases by customers and employees
    • Frequently check shipments of parts in company vehicles

    Service Department
    • Service work should be spot checked to ensure parts charged are being used in the repair order
    • During month end procedures, all WIP should be computed and inventoried and all repair orders should be listed
    • Ensure no unit leaves the shop without proper payment arrangements being made

    Other Items
    • Department managers must sign off on payrolls approving the individual and amount
    • Bank statements should be delivered to the dealer unopened and should be reviewed for unusual items and cancelled checks. It should also be reconciled by an individual with no access to cash.
    • Further, special procedures should be developed to control electronic banking transactions.
    • Make sure all clearing accounts are current (payroll tax withholdings, vehicle payoffs)

    Fraud can have devastating effects on profits. If are not protecting yourself against fraud, you need to get there. You do not want to be the dealer who has fraud resulting in a $200,000 hit to the bottom line.

    Clint Whitehair can be reached by email at CWhitehair@hbkcpa.com or by phone at 317-886-1624.To discuss ways to implement a system of Internal Controls to avoid internal fraud at your dealership or for any other inquiries, contact a member of the HBK DIG at 330-758-8613.

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    Employee Absenteeism: A Problem for Many Dealers

    Date October 3, 2019
    Categories

    Dealers can’t afford to carry a lot of dead weight. You have to run lean and mean. That is particularly true when it comes to your staff. When an employee is absent or late excessively, it can have a meaningfully negative impact on operations.

    Dealing with employee absenteeism raises two questions: what is excessive and how as a manager to deal with it? For example, your policy provides for 15 days off a year for parts department employees, but one of your employees has taken all 15 days within the last two months: is that excessive? A talented mechanic is habitually late, 15 or 20 minutes or sometimes a half hour, two or three times a week. Is that excessive and what do you do about it?

    DEFINING ABSENTEEISM
    So what is excessive? If you consult with your attorney, the likely answer is, “It depends.” There’s really no strict rule or standard as to what is considered excessive absenteeism. It is more about whether or not the absenteeism violates your policy.

    There are exceptions, such as when the absenteeism is covered under the Family and Medical Leave Act (FMLA). The FMLA permits time off of up to 12 weeks for medical treatment of the employee or a dependent family member. Your policy can require an employee to use other compensated time off first, before the FMLA time begins.

    ESTABLISHING POLICY
    Policies for absenteeism can be flexible, and often are, as dealership employees are typically close-knit groups, even family-like, in many instances. A flexible policy might have different requirements for various dealership departments or job classifications, or might allow for more time off during times when business is typically slow.

    Still, the dealer needs a set policy for absenteeism. In the past those policies have broken down time off into different categories, such as vacation time and sick leave. But over the years we have seen that such categorization often forces employees to lie, such as calling in sick when they aren’t. So we recommend policies that simply provide for a set number of days of paid absence, regardless of reason – vacation, personal, sick. You don’t need to know and your employees don’t need to lie. Clearly state that any additional time off must be approved by management as unpaid leave. Most dealers find a vacation calendar helpful, where vacations are scheduled in advance and spaced so as not to leave the dealership understaffed.

    Some dealers tend to shy away from rigid rules and prefer more general policies that permit supervisors to make determinations about excessive absenteeism. But while you want to be flexible you have to be careful because flexibility often leads to inconsistency, which can spur accusations of favoritism and even wrongful termination lawsuits. It may be best to consult an employment attorney when drafting any HR policy.

    ADDRESSING ABSENTEEISM
    When absenteeism is a problem with an individual, it is important to have a discipline program in place. All counseling and verbal warnings should be documented. If not, it can be problematic if you have to defend yourself in court against accusations of wrongful termination. Human Resources or management should be involved in any discussions with employees on absentee issues, and an employee’s file should contain records of notices issued, counseling provided, all warnings and steps taken in an attempt to correct the behavior. Only then can the dealer be in a strong position to take action including terminating employment when warranted.

    Whatever your policy, it is most important that it clearly spells out attendance and punctuality expectations as well as job requirements. If your policy is simple, straightforward and easy to understand, your employees are likely to follow it.

    Rex Collins is a Principal at HBK CPAs & Consultants. He directs HBK’s Dealership Industry Group, which provides tax, accounting, transaction, and operational consulting exclusively to dealers. Rex can be reached by email at RCollins@hbkcpa.com or by phone at 317-886-1624.

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    HBK CPAs & Consultants Among Fastest-Growing Great Lakes Firms

    Article Authors
    HBK CPAs & Consultants

    HBK CPAs & Consultants (HBK) is one of the fastest growing CPA firms in the country according to the 2018 Inside Public Accounting (IPA) magazine poll.

    The survey, which calculates firm size based on reported growth in net revenue, ranks HBK as the fourth fastest-growing CPA firm in the Great Lakes region. The region includes firms in Illinois, Indiana, Michigan, Ohio and Wisconsin.

    HBK has consistently been listed in the IPA’s “Top 100 CPA Firms” over the past two decades. Additionally, HBK is a perennial “Top 100 Accounting Firm” according to Accounting Today (AT) magazine rankings. In 2014 and 2017, AT also listed HBK as one of the fastest growing firms in the U.S.

    HBK CEO and Managing Principal Christopher Allegretti, CPA, credits his team’s efforts to work in collaboration across specialty and industry-specific service lines and throughout widespread geographic regions.

    “Our focus is collaboration, working together,” he said. “We tap the depth of our resources to their fullest extent, the collective expertise of hundreds professionals in five states.”

    Allegretti added that collaboration contributes to the firm’s strength in developing all-inclusive solutions. “Developing a comprehensive understanding of a client’s financial circumstances as a basis for helping them grow and protect their wealth is a hallmark of our practice and has been a great differentiator for us.”

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    Why Knowledge Management is an Important Business Process

    Date October 15, 2018
    Article Authors
    HBK CPAs & Consultants

    Knowledge management is the process of recording and managing an organization’s mission-critical knowledge.

    One way to use it is to mitigate the ill effects of turnover. How? First collect and categorize knowledge as either explicit (already documented) or tacit (only in employees’ heads).

    To gather tacit knowledge, get employees’ buy-in, conduct interviews and use an intranet to facilitate online discussions.

    With all this information, you can more quickly disseminate a departing employee’s know-how and more easily train new hires.

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    Job Descriptions: Why They Matter

    Date July 31, 2018
    Article Authors
    HBK CPAs & Consultants

    Words have power. This is especially true when it comes to defining roles and responsibilities in an organization.

    Therefore, it follows that up-to-date, accurate job descriptions form the foundation of every organization’s staffing efforts. Without clear, focused documentation of what each position entails and its corresponding expectations/objectives, you may struggle to hire and retain good employees. This may drastically undermine productivity.

    Look at everything

    The solution is relatively simple: Regularly review your job descriptions to ensure they are current and comprehensive. Check to see whether they list outdated procedures or other outmoded elements, such as software that you have since phased out.

    If you do not already have written job descriptions for each position, you need not panic. Ask employees in those jobs to document their responsibilities and everyday duties. Each worker’s manager should then verify and, if necessary, help revise the description.

    Turn information into improvements

    After you have updated your job descriptions, you can use them to increase organizational efficiency. Weed out the marginal duties from essential ones. Eliminate superfluous and redundant tasks, focusing each position on activities that generate revenue or eliminate expenses. You may be able to make improvements in other areas, too, such as:

    Workload distribution: Are workloads properly distributed among employees? If not, rearrange them. You may find this necessary when job duties change.

    Cross-training: Can your employees handle their co-workers’ responsibilities? In emergencies, and as a fraud-prevention measure, having workers who can handle each other’s jobs temporarily can serve an organization well.

    Recruiting: Are you hiring people with the right skills? Up-to-date job descriptions provide a better road map for finding ideal candidates to fill your open positions.

    Performance evaluations: Are employees doing their best? Detailed job descriptions allow managers to better determine whether workers are completing their assigned duties and if they’re meeting — or exceeding — expectations.

    Get started soon
    The longer you wait to review and rewrite job descriptions, the harder it will be to revise them. Once you’ve got them up to date, the task becomes much easier from year to year.

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